Residential Construction Contracts – 9 Things Every San Diego Resident Should Know May 2nd, 2019 So you’ve decided to remodel a space in your home, but before worrying about the contract, you need to decide if you’re going to hire a contractor or a design build firm. What used to be two separate phases (design phase and construction phase), design build firms are now combining both phases into a one stop shop. In doing so, a design build firm such as Lars Remodel & Design creates faster project finishes, cost savings, and streamlined communication, as well as overall quality control of the entire process. Whether you decide to go with a company such as Lars, or choose to go the more traditional route and hire an independent contractor, the importance of understanding the construction contract can’t be overstated. Your contract contains important information about the work that will be completed, including labor, materials, and more. That’s why you need to be sure you understand what everything in the contract means before you sign on the dotted line. Contracts are generally specific to the contractor and while they can outline the details, it’s not likely that you’ve seen an exact contract format like it before. Now that you’re ready to remodel your home, keep reading to learn more about residential construction contracts so you can be prepared for everything. The Importance of a Construction Contract A construction contract is a legal binding document that ensures that your contractor delivers what is promised. It also ensures that the contractor gets paid for the work completed. You should never move forward with a remodeling project without a contract. One of the most important details to take note of in your contract is that the line items match up with the contractor quotes. You should have a written quote to compare. Understanding Residential Construction Contracts There are three different types of construction contracts depending on the type of project: Cost-plus, Lump Sum/Fixed Price, and Time and Materials. Be sure to ask your contractor upfront which type of contract he or she is presenting you with so you may better understand how to break it down. Cost-Plus Contracts With a cost-plus contract, the buyer, or you, the homeowner, pays the costs of construction and purchases as well as an agreed amount for the contractor. This can be a percentage of the job or a set amount. You may want to request a guaranteed maximum price to ensure that the contractor doesn’t exceed your budget. Lump Sum/Fixed Price Contracts One of the most common builders’ contracts is the lump sum or fixed price contract. Here, you will agree to a set price with the contractor and the contractor will bear the risk. This means that if prices go up or problems arise, you won’t be responsible to pay any more. Time and Materials Contracts These types of contracts are just as they sound. The homeowner pays for the contractor’s time and the cost of construction materials. There is a risk to the homeowner here because if the contractor takes extra time or goes over budget, you are responsible in the end. 10 Issues to Consider Before Signing With Your General Remodeling Contractor Your remodeling contractor should be as concerned with the logistics of your project, contract, and satisfaction as you are. Here are some things to consider while reviewing your contract. 1. Project Manager Make sure that a project manager is included as part of the project. Unless you plan to be home watching your contractor every step of the way, it’s recommended to hire a company that has a project manager to oversee the project. His or her responsibilities should be laid out in the contract. 2. Insurance It’s important to note that your homeowner’s insurance policy will not cover major construction. That’s why it’s so important to be sure your contractor is providing builder’s risk insurance. Speak to an attorney if you’re unsure what the contract says. 3. Warranty Your contractor should provide you with a warranty not only on the materials but also on the work completed. While many homeowners think that a one year warranty is standard, find out if there are other warranties available. 4. Use of Forms Remember that each contractor will have their own specific contract style. If you are unsure with the layout of this form, you can compare contracts generated by the American Institute of Architects and other websites that will inform you on how to interpret and address parts of the contract you’re unfamiliar with. 5. Cost Structure As noted, the cost structure is generally laid out by the type of contract. But, it’s important to understand the different cost structures. Your contractor should provide one of the following three: Stipulated sum Cost of work plus a fee Cost of work plus a fee subject to a guaranteed maximum price 6. Retention You may stipulate retention for services performed in your contract. Typically the standard amount is 10%. This guarantees a certain amount of work is done prior to the first payment. 7. Change Orders It is inevitable in a construction project that there will be changes. It’s up to your contractor to provide you with change orders for each plan that requires adjusting. The details should include the nature of the change, costs, and any impact on the completion schedule. 8. Lien Waivers Your contractor should provide lien waivers on work completed throughout the project and again at the end. This should include the contractor, subcontractors, and suppliers who are entitled to the property. 10. Interior Designers Your project will require an interior designer to help you find fixtures, appliances, and help make other arrangements in the construction. Don’t wait to hire a designer until after the project has commenced or you will be facing more change orders and quite a significant cost increase. Final Thoughts Residential construction contracts can be quite confusing, but following the advice listed above will help walk you through the process. Make sure you take the time to read your contract thoroughly to ensure that you don’t overlook something that could cause trouble and extra money later down the line. Hiring a reputable Design Build firm such as Lars Remodeling & Design will make the process that much easier and can help take a lot of the guesswork out of the construction contract process. Remember, too, don’t forget to ask for references. A well-respected company like Lars will have no problem providing you with this information. When you’re ready for your next remodeling project, don’t hesitate to contact us. We have been serving San Diego County for over twenty years.